Commonwealth Authorities and Companies Amendment Bill 2008

Bills Digest no. 85 2007–08

Commonwealth Authorities and Companies Amendment Bill
2008

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The main financial
reporting and related accountability obligations of Commonwealth
government bodies are set out in either the Financial
Management and Accountability Act 1997 (FMA Act) or the
Commonwealth Authorities and Companies Act 1997 (CAC
Act).

Commonwealth Government
bodies regulated under the FMA Act are financially and legally part
of the Commonwealth, holding public money that can only be spent
under the authority of an appropriation from the Australian
Parliament. Such bodies are generally headed by a Chief
Executive.

By comparison, bodies that are both legally and financially
separate from the Commonwealth are regulated by the CAC Act. Such
bodies usually have a governing board. Unlike bodies subject to the
FMA Act, CAC Act bodies are generally not required to comply with
general government policies unless specifically required to do so
under either:

a direction from the responsible Minister (where this is
possible under the relevant enabling legislation or a company s
constitution), or

a notice provided about a general policy of the Australian
Government under existing sections 28 or 43 of the CAC Act.

The range of Commonwealth
Government bodies governed by the CAC and FMA Acts can be accessed
via a list
held by the Department of Finance and Deregulation.

The amendments in the bill are primarily intended
to improve accountability and transparency arrangements for
Commonwealth authorities and Commonwealth companies. The amendments
in the bill also improve the alignment of the CAC Act with
equivalent provisions in the Corporations Act and update the CAC
Act based on experience from over 10 years of operation.[1]

Subsequently, the
Government released an exposure draft of the Financial Framework
Legislation Amendment Bill in 2003, which was the subject of a
further JCPAA
report. However that Bill, which was passed by Parliament in
2005, mainly concerned the FMA Act rather than the CAC Act.[2] The amendments proposed
by the current Bill do not appear to have derived from any formal
review process.[3]

The Senate Standing Committee for the Scrutiny of Bills (the
Committee) reviewed the Bill in its
report tabled on 12 March 2008.[4] However, it did not make any adverse comments on
the Bill or request any advice from the relevant Minister.

The CAC Act sets out various duties and obligations that
officers of Commonwealth authorities and bodies must discharge. In
some cases, a failure to do so may constitute an offence and carry
significant criminal sanctions. Items 8 and 9
change part of the existing definition of officer . They do so by
replacing the current concept of an officer as including a person
who is concerned in, or takes part in, the management of the
authority with the concept of senior manager . The term senior
manger is imported from the Corporations Act 2001 (the
Corporations Act). In least in some cases, this would appear to
widen the range of persons who might be subject to officers duties
and obligations to include not only persons directly involved in
the management and decision-making process of the relevant body but
also persons who have the capacity to affect significantly the
authority s financial standing .

Division 2 of Part 3 places various
obligations on directors of a Commonwealth authority. Among them is
the requirement to prepare an annual report for presentation to the
relevant Minister. Existing section 11 provides that directors may
be subject to civil penalties if they contravene their reporting
obligations. Item 18 amends section 11 to include
a criminal offence where a contravention of any of the directors
reporting obligations rules is dishonest .[6] The maximum penalty in such a case is a
fine of 2,000 penalty units ($220,000) or five years imprisonment,
or both.

The concept of a dishonest
contravention is also contained in item 24, which
amends section 20. Section 20, which deals with an officer s
obligations with respect to the authority s accounting records,
currently contains a criminal office containing a penalty of six
months imprisonment. Item 24 reduces the
non-dishonest contravention to a civil penalty offence, but a
dishonest contravention carries a maximum penalty of a fine of
2,000 penalty units or five years imprisonment, or both.

Existing section 27D deals with the
circumstances under which a director of a Commonwealth authority
may reasonably rely on information or advice provided by others in
discharging their duties or obligations. One of the conditions that
must be fulfilled is that the director must first make proper
inquiry about the information or advice if the circumstances
indicated the need for inquiry : existing subparagraph 27D(b)(ii).
That is, the director cannot necessarily accept the information or
advice on face value. Item 33 replaces existing
subparagraph 27D(b)(ii) with the same language used in the
Corporations Act. Thus the proposed condition is that the director
can only place reliance after making an independent assessment of
the information or advice, having regard to the director s
knowledge of the authority and the complexity of the structure and
operations of the authority . So for example if the Director has
only modest understanding of relevant aspects of the authority,
they may need to seek substantial independent assessment of the
information or advice.

Subject to some exceptions,
existing subsection 27F(1) requires a director of a Commonwealth
authority to disclose any material personal interests in a matter
relevant to the authority s affairs. However, the CAC Act does not
contain any penalty for breach of this obligation[7] in comparison the equivalent
Corporations Act provision (section 191) carries a maximum penalty
of 10 penalty units ($1,100) or imprisonment for 3 months, or both.
That provision is also a strict liability offence. Items
34 and 35 make a breach of subsection
27F(1) a strict liability offence, carrying a maximum penalty of 10
penalty units, but does not add the penalty of imprisonment. The
Explanatory Memorandum comments in relation to these items
that:

If ultimately penalties for these provisions under
the CAC Act differ from their Corporations Act equivalent, further
consideration may be given to amending those penalty
provisions.[8]

It is not clear whether such
further consideration means that that the proposed CAC Act penalty
be expanded to include possible prison time or whether this element
might be dropped from the Corporations Act.

Existing subsection 27J(1) also
contains restrictions on a director who has a material person
interest in a matter from being present at a director s meeting at
which that matter is being discussed, or voted on. These
restrictions can be waived in certain circumstances. Items
37 and 38 introduce similar Corporations
Act consistency provisions as items 34 and
35 discussed above. In this case, the proposed
penalty for contravention is 5 penalty units ($550).

Items 40, 50 and
53 contain some of the key amendments in the Bill those
introducing the concept of General Policy Orders or GPOs. These
GPOs are to replace the concept of general policies of the
Australian government currently in the CAC Act. The Explanatory
Memorandum comments that:

A general policy of the Australian government is a
policy that is made by the government, usually by Cabinet or senior
ministers, that applies to all or most bodies subject to the FMA
Act and CAC Act. A policy Minister oversees the development and
administration of the policy. [9]

The CAC Act currently allows the
particular Minister responsible for the authority or company to
notify the directors of any general policies that are to apply to
the body.[10] In
relation to companies, the provisions only apply to companies that
are wholly-owned by the Commonwealth. The Minister must consult the
directors before such notification. The directors must ensure that
the authority or company complies with the policies, and to the
extent practical, that subsidiaries of the authority or company
likewise comply.

Under the proposed changes, GPOs
are made only by the Finance Minister via legislative instrument
and thus must be both tabled in Parliament and placed on the
Federal Register of Legislative Instruments. However,
proposed subsection 48A(5) (item
53) provides they are not disallowable, nor subject to
standard sunsetting provisions under the Legislative
Instruments Act 2003.

The GPOs may be expressed to apply
to all authorities or companies, or only specified ones, or
specified classes of authorities or companies. They may also
provide that only particular parts of the GPOs apply to specified
authorities, companies or classes of these. Before making a GPO,
the Finance Minister must be satisfied that the Minister(s)
responsible for the authorities and companies to which the GPO will
apply have consulted the Chair and/or directors of those
authorities and companies on the application of the policy. Once
the GPO is made, the Directors have the same duty to ensure
compliance as is presently the case under the CAC Act.

The Explanatory Memorandum
comments:

These changes to the notification of general
policies of the Australian government are aimed at improving
efficiency and transparency in the way general policies are
notified, through reducing the number of letters involved in the
process and making it easier to identify what policies have been
applied to Commonwealth authorities and wholly-owned Commonwealth
companies. The amendments only change the notification process and
would not affect the underlying general policies of
government.[11]

Item 41 inserts
proposed section 28A to allow authorities to use
credit cards and credit vouchers. This regularises and clarifies
current practices and is consistent with similar provisions in the
FMA Act. Item 42 inserts proposed section
28B, which contains a criminal offence for misuse of
credit cards and credit vouchers. Existing section 60 of the FMA
Act contains a similar provision. The maximum penalty is seven
years imprisonment.

Existing section 34 defines a
Commonwealth company as one in which the Commonwealth has a
controlling interest . Item 44 amends this
definition to a company which the Commonwealth controls , and
defines what control means. This brings it into line with the
equivalent provision in the Corporations Act (section 46). The
Commonwealth will be deemed to control a company if:

it controls the composition of the company s board; or

it is in a position to cast, or control the casting of, the
majority of votes that may be cast at a meeting of members; or

it holds a majority of the share capital in the company
(excluding any part of the issued share capital that carries no
right to participate, beyond a specified amount, in a distribution
of either profits or capital).

The change will widen the range of
companies that fall within the meaning of Commonwealth company and
thus be subject to the CAC Act.

Existing section 36 requires a
Commonwealth company to give the responsible Minister an annual
report. Failure to do so within the required timeframe renders the
company liable to a penalty of 50 penalty units. Item
46 amends this by providing that a company director,
rather than the company, is liable for the offence if they either
cause the contravention of the reporting obligation or fail to take
reasonable steps to secure compliance with it. The maximum penalty
is 2,000 penalty units, or if the contravention is dishonest, five
years imprisonment. Again the Explanatory Memorandum comments that
this is to bring the CAC Act into line with the Corporations
Act.[12]

Existing Schedule 2 of the CAC Act
sets out how the penalties for contravening the Act s civil penalty
provisions are enforced. Items 58-66 insert
various references into Schedule 2 to cover the new civil penalty
provisions inserted into the CAC Act by the Bill.

[3]. Note that in 2003 the then Coalition government
released the findings of the
Review of the Corporate Governance of Statutory Authorities and
Office Holders (the Uhrig Review). However, the Uhrig
review focussed more on the appropriate governance structure of
Commonwealth bodies, and the interaction between the bodies, the
responsible Minister and Secretary of the relevant Commonwealth
Department. As such, the Bill does not appear to be directly
related to the Uhrig Review process.

Angus Martyn
13 March 2008
Bills Digest Service
Parliamentary Library

This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.

This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.

Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.